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Can You Answer These 5 Basic Financial Questions? 90% of Americans Can’t

by Darwin on June 16, 2011

Stemming from last week’s post (Disturbing Study: Americans Are HORRIBLE With Money) on the abysmal study results highlighting America’s lack of financial literacy, here are the 5 questions they used to measure people. Less than 10% of respondents got all of them right. Are able to get all 5? Come on, avid readers of Darwin’s Money should be able to get at least 4, right???

1) Suppose you had $100 in a savings account and the interest rate was 2% per year. After 5 years, how much do you think you would have in the account if you left the money to grow?
More than $102
Exactly $102
Less than $102
Do not know
Refuse to answer

2) Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After 1 year, how much would you be able to buy with the money in this account?
More than today
Exactly the same
Less than today
Do not know
Refuse to answer

3) If interest rates rise, what will typically happen to bond prices?
They will rise
They will fall
They will stay the same
There is no relationship between bond prices and the interest rates
Do not know
Refuse to answer

4) Please tell me whether this statement is true or false. A 15-year mortgage typically requires higher monthly payments than a 30-year mortgage, but the total interest paid over the life of the loan will be less.
True
False
Do not know
Refuse to answer

5) Please tell me whether this statement is true or false. Buying a single company’s stock usually provides a safer return than a stock mutual fund.
True
False
Do not know
Refuse to answer

I almost goofed up on #1. I read too fast, and didn’t notice the whole 5 years thing. Instead, I started debating APR and APY in my head before reading it again and realizing it really wasn’t a trick question…just a stupid question.

Same here. Not sure highschools even touch on most of this. I took a personal finance class in HS, if that was all I had in terms of a PF education, I’d know #1 and maybe #5. Worthless class, but an easy A!

I could definitely believe that most people cannot answer those questions. The reason so many Americans make poor investment decisions is chiefly due to lack of financial education – or bad advice. If more people put effort into understanding their opportunities, how to save and how to spend, then we would see a tremendous change. You don’t have to be a economist to know how to invest, but you do have to learn to take advice from the right sources before you can build your own instinct.

Sorry if I am a cynic, but I believe the average person is innumerate. Numbers simply confuse them and when there are $$ before the numbers it gets worse.

I’m sorry this wasn’t set up as a quiz to take here. Odds are good your readers are closer to the 60% David guesses. “what’s bigger, the moon or an elephant?”
An actual adult on a quiz show got this wrong. I asked my daughter this when it first hit the news. She asked “actual size or how it looks because how far away the moon is?” Uh, actual size. “Dad, guys landed on the moon, it’s smaller than earth, but pretty big.”